Real Estate

9 Doors While Deployed and Investing from Afghanistan, Iraq, and Africa


When you think about long-distance investing, what comes to mind? People usually have reservations about investing out-of-state, but today’s guests took it a step further and invested from halfway across the world. Today’s guest, Caleb Drake, has closed on nine doors with one flip underway.

Caleb was active duty military for fourteen years, and once he joined special ops he was  deployed for six months at a time. During those six months, his house would sit, unused, and that’s when he saw an opportunity. Caleb decided to rent out his house through Airbnb. As a new landlord and Airbnb host, Caleb had to learn by doing, a task that was increasingly more difficult since he was self-managing from Iraq, Afghanistan, and Africa. Caleb was able to combat this challenge by building a team that could handle what he couldn’t.

After a few years of investing solo, Caleb joined a partnership to expand his portfolio and increase his profit. His partner was also out of the country, so they switched off who was “on-call” and figured out how to automate their check-in and check-out processes. As the business grew, the partnership adjusted to ensure its longevity. Caleb now hopes to continue to scale his business, add to his personal portfolio, and build wealth in the background.

Ashley Kehr:
This is Real Estate Rookie episode 181.

Caleb Drake:
I would say, I think it’s cliched, but network, network, network, network, everybody. Tell everyone what you are doing and what you want to do, whether that’s, Hey, I want to buy an off-market property or, Hey, I’ve got a quadplex and I want to fix it up, somebody’s going to be able to help you in that. And you’ll be able to create relationships in the long run, go to industrial meetups, go to the BiggerPockets forums, ask the questions and just tell everyone.

Ashley Kehr:
My name is Ashley Kehr. And I am here with my co-host Tony Robinson.

Tony Robinson:
And welcome to the Real Estate Rookie, where every week, twice a week, we give you the inspiration, information, and amazing stories you need to hear to get started in your real estate investing journey. Ashley Kehr, my wonderful co-host from the terrible state of New York, what is going on?

Ashley Kehr:
Well, just a couple of weeks ago, we finished the Real Estate Rookie Bootcamp weekend in Denver, Colorado, where Tony and I had about 300 rookie investors come to the Gaylord Rockies. I just want to thank everybody who came to the conference, and I hope you learned a lot, and were able to network and meet some people that will become lifelong friends, and colleagues, or business partners in the future.

Tony Robinson:
Yeah. And Ash, I love how you glossed over me saying the terrible state of New York. So, I love to get Ashley a hard time because the weather in New York is always so terrible compared to where I’m at in California, it’s not even a match.

Ashley Kehr:
It’s not only the weathers, I mean, there’s the tenant-landlord laws, there’s the property taxes-

Tony Robinson:
The long closing time, now I think about it.

Ashley Kehr:
There were just so many things he could have been referencing.

Tony Robinson:
I don’t even want go there.

Ashley Kehr:
But, where Tony lives in California, it is going to be an opportunity for people to go visit Tony in California for the BiggerPockets conference. Tickets are going on sale. Now, if you want to get a jumpstart, go to biggerpockets.com/events, and you can check out the BPCON event that is happening in October, in sunny, beautiful San Diego, or how does anchorman say it? San Diego?

Tony Robinson:
Yeah. San Diego’s a great place, I was actually just there a couple of weeks ago for my fitness competition and I’d never get enough of San Diego. So, you guys are going to have an amazing time if you choose to come down to San Diego and hang out with us. Another thing that Ash and I want to start doing is just highlighting more people from the rookie community. We’ve got a really growing, and excited, and just really highly engaged community. So, whether you’re getting active in the BiggerPocketss forums, or at Real Estate Rookie Facebook group, which has almost 50,000 members in there, there’s just a lot of people in the community that are doing some really amazing things.
And what I want to highlight today is someone who recently left a review for the rookie podcast, because it was just a really cool story to hear. This person’s username is Katie Sherry. And Katie said in June 2021, I found BiggerPocketss and shortly after I found the rookie podcast, it was absolutely life-changing. Now, just 10 months later, my husband and I have two properties and are under contract for a third, we also have interest from other lenders on a fourth. And she says, wow, it feels like once you get started and learn the steps from this podcast, you can slow down in a really good way. Tony and Ashley’s advice works. There’re super motivating about taking action, so even if you’re just a little bit intrigued about real estate investing, you’ve come to the right place. Katie Sherry, that is amazing. You did more in 10 months than most people do in a lifetime, so kudos to you for making some amazing progress.

Ashley Kehr:
Yeah, that is so great. And I love when you guys tell us about your success stories from listening to our awesome guests that come on here and take the time to share their experiences and to give advice. So, please keep them coming in because we love to hear about them and read them. And I think Tony, you’re going to keep highlighting these stories, right?

Tony Robinson:
Absolutely, yeah. If you guys haven’t yet, please leave an honest rating and review for the Rookie Podcast on whatever platform you’re listening to. And we want to start taking some of those reviews and sprinkling them into the show. So, if you want a chance to get highlighted, be sure to leave an honest rating and review and you might get spotlighted.

Ashley Kehr:
Well, today’s guest, we have Caleb on. And we feel terrible because this is our third time trying to record with him, and we finally made it happen. Caleb, is going to talk about how he actually turned his primary residence into a short term rental while he is in the military. And he actually managed his short term rental from Africa, Afghanistan, and Iraq. And he goes into what he did, what he should have done different, and what he’s doing now. So, he’s built out a portfolio with a partner and himself on long-term and short-term rentals.

Tony Robinson:
Yeah. And he also talks about how he used a partnership to scale and grow his business. But I really want you guys to pay attention for the part towards the end, where he talks about some of the difficult conversations he had to have with his partner and how he went about having those conversations and what the end result was, because I think there was a big lesson there for all the Rookies as well.
Caleb, welcome to the Real Estate Rookie podcast, brother. We’re super excited to have you. Why don’t you start off by telling us a little bit about yourself, and how you got started in the world of real estate investing?

Caleb Drake:
Yeah. So, Caleb Drake, I’m an active-duty military officer, I’ve been in about 14 years. I’ve got nine doors, and we’ve got a current flip going on as well. But I started out in my real estate journey by, I was deployed about six months of the year, and I had a long-term roommate, but then when she moved out my house was just sitting vacant. So, I didn’t know anything about house hacking any of that sort, but I was like, well, what can I do to make money? And so I started listing my house on Airbnb. I knew nothing about doing anything, and luckily it worked out. But I listed on Airbnb, I deployed to Africa, though I had an awesome cleaning lady, a decent team put together that I just haphazardly put together and got lucky. But I had great results with that, so I did that for two deployments. And then one of my best friends was like, Hey man, this real estate thing you’re doing is awesome, let’s talk about doing a partnership.
And he didn’t even own a house himself at that point, he was renting. And so we started looking around. He’s out of state, and so I was like, all right, so let’s do it in my market because I’m in Pensacola, Florida, I’m outside of Pensacola, or technically we’re in Navar Florida, which is 30 minutes to the east of there. But it’s a great short-term rental area, tons of military, tons of vacation spots we’re four miles from the beach from where our house is. So I was like, yeah, man. I started looking around with an agent, I had a friend that was a real estate agent and they owned a bunch of long-term rentals.
And so I was using her as my value add in my team. And so Kelsey started showing us some houses, we found one that we like, put an offer in, got the offer accepted. Looking back on it, we probably went way too high on the offer because it wasn’t the 2021 market. But I didn’t really know because I didn’t even know BiggerPockets existed at that time, I was just doing everything just by the seat of my pants. And it all worked out luckily because I understood numbers, I understood that you have to have a positive cash flow, but I didn’t understand the actual-

Tony Robinson:
Mechanics of making it happen, right?

Caleb Drake:
Yeah.

Tony Robinson:
The next in the credits. And Caleb, I think that’s what’s so cool about real estate investing is that even if you don’t have all of the information, as long as you’re taking smart action, you can typically end up in a pretty good spot. But I mean, first Caleb, I want to thank you for your service, brother. You said 14 years in the military, that is no small fee, brother, so we appreciate your service there. And then what’s also just as maybe extraordinary is the fact that you said that you were managing your short-term rental from Africa, Afghanistan, and Iraq, did I hear that the right way?

Caleb Drake:
Yes sir.

Tony Robinson:
Okay. We got to break that down Caleb, because I think most new investors, they’re afraid to invest an hour away from their house, or two hours away from their house, and you were however many thousands of miles on the other side of the continent. I guess first Caleb, if you can walk us through what was that light bulb that went off to make you say, okay, maybe renting it out on Airbnb is a good idea? And then once you made that decision, how did you go about putting that team in place to make sure that you could manage it while you were deployed?

Caleb Drake:
So, I’ve always wanted to have rentals, I’ve split houses with my friends when I was renting a house when I was in training and stuff that, just to lessen the burden of the mortgage, or lessen the burden of the rent, and to be able to save more and invest more. But I just saw my house was sitting there, and Airbnb was still a newer thing, this was 2017, 2018. And so I just I started asking some of my friends and somebody said, Hey, I’ve got a neighbor that rents her house next door to us. And so she put me in touch with that lady, and then we connected, and then actually she brought her cleaning lady over to me, and that cleaning lady she’s amazing.
To this day I still use her, and I don’t think I would’ve been able to self-manage without having her on my team because she did a lot of the stuff that I didn’t think about before I left, like oh man, I’m out of toiletries, that three months of toiletries actually only lasted a month. And so she would, Hey, Caleb, we’re out. And so she would pick it up, I would pay her for her time, I would pay her back for the supplies, and she helped me manage it there. But I was doing all the check-ins, I was doing any repairs. I had to get somebody over to fix the hot water heater. I was doing all of that from overseas. And lack of sleep for sure, but once you get a system in place, and I wasn’t using any of the automated systems that they have today, I didn’t even have standard check-in, copy and paste, every time I was typing it up.
It was a time suck but it was so cool because I got to meet people. And this was my house, it was the first house I ever owned, and I was so proud of it, I had done a lot of work to it. And people would say, man, we love this place, this is awesome. And all I did was when I moved, I just moved all of my personal stuff into my master bedroom closet and put a deadbolt on it. That was the extent of me preparing to do this.
I mean, somebody could have easily broken into there, there could have done any of that, but I vetted my guess very well, and I targeted who I wanted to rent the place, and I kept my pricing around that point. And I don’t think I knew what I was doing exactly by doing that, but now I understand, being able to put your target audience, being able to… You’re a short-term guy, if you want to rent to professionals, then you market your house to professionals for midterm rentals, if you want to market to families you have the crib that’s set up for family members and all of that. And so I wanted to rent to families that couldn’t afford to live on the beach, and or to stay on the beach, and that was my target audience. So, we put an extra bed in one of the rooms, and was able to rent to families of six to eight people in that house, and it was a three, two.

Tony Robinson:
That’s awesome, Caleb. I mean the team piece I think is one of the most critical components of being successful as a short-term rental operator. Just like you, when we got our first short term rental, it was our cleaner that taught us a lot about what it means to really be able to be a good operator. She was like, Hey, you need to buy more than one set of sheets for your beds. We’re like okay, I guess that makes sense. So, having a good cleaner is definitely a critical component I think to a new short-term rental operator finding success. And then at a bigger scale, having the right team in place in general is critically important if you want to be able to manage your properties remotely.
And for us as the short-term rental operators is typically the cleaner. So, I just want to go back to the timeline a little bit, Caleb. So, you start with the Airbnb property, you’re renting that out while you’re doing these deployments, those deployments last for about four years, so during the majority of that time you’re doing the Airbnb. How long after those deployments are over, do you actually kick off this partnership with the friend of yours?

Caleb Drake:
It was actually in the middle of it. So I did…

Tony Robinson:
Oh, wow.

Caleb Drake:
Yeah. I did two deployments renting out my house, and then I came back from one, and Josh actually came down, that’s my partner. And he was like, man, this is awesome, let’s do this. And so we talked about it over dinner and then literally, he had texted me prior to coming down and was like, dude, I want to get into real estate, and I was like, I want to get into more real estate. So we decided, Hey man, I trust you trust me. Looking back on it, we didn’t have any written agreements, and that we didn’t do anything of the sorts like you should. But we went to college together, we’d known each other for almost eight years at this point, and it was something that worked out in the long run, but I definitely would recommend going forward for rookie investors that are listening to this to get those documents in place, and those understandings, because there were a lot of things that we just winged.
And luckily we are good enough friends that it never put a tension on our friendship or anything. But there were times where it was like, who’s going to do what? And how do we lay that out? And so going back to that, so we decided to buy, and then I deployed four more times after that, and we still managed remotely. So, at one point, Josh was in England going to college.
He’s a military officer and he got accepted to Cambridge University. So, he was going to college in England, and I was in at that point Afghanistan again, and we were still managing remotely. We would just split the check-ins, whoever could answer the… I’ve got him as a co-host of whoever could answer the questions when they came up, he was six hours, I think ahead, I was 13 and a half, Afghanistan’s weird, they go on the half-hour. So, I was 13 hours ahead of something of that sort.
It was tough, but there was always somebody available. Whether I was working night, when I wasn’t flying, I could answer. We communicated like, Hey man, I’m going to be flying a couple of missions this week that are pretty long, so you’ve got the check-ins. And so at that point we had started to actually use the software to check-in guests and do the automated check-ins and automated checkups. Essentially, every couple of days we’d say, Hey, is everything good? And that worked out because then all we have to do is send the door code that the cleaning lady sets. And so she’ll set the door code-

Ashley Kehr:
Caleb, can you walk us through that software and how that works? I mean, I think, getting the door code automatically sent to the person. I mean, Tony obviously knows this, but for me, who was you in the very beginning, who just uses the Airbnb app, that my cleaner communicates on, I have no systems that processes in place. So, tell me more, what softwares are you using, and what features do they have that has made it so much easier for you to manage these from anywhere?

Caleb Drake:
Yeah, so we used IGMs, and it takes a lot to set it up once you get the setting up and you get it running correctly, it’s automatic. So, the morning of our check-in at 8:00 AM, we allow check-ins at 3:00 PM, so at 8:00 AM they get an automated, Hey, this is the directions to the house, this is the check-in information, this is the house rules, here’s the location of the written house rules, and this and that. And so they get that in the morning, and then in the bottom, it says, we will send you the check-in code once the cleaning lady cleans the house. And so she’ll set the manual code on the door. We got it down to that. I want to end up going with an automatic Bluetooth or internet-enabled lock on that Airbnb, but so if you’ve got any recommendations on those Tony, I’ll take them up.

Tony Robinson:
Yeah. I was going to say I do. So, the one that we use is called the Schlage Encode. And it’s a WiFi Deadbolt, because there are some that are Bluetooth, but then you have to buy an adapter, or this other dongle to make it work, but the Schlage Encode is the one that works directly with your WiFi. The problem is I’ve been talking about it so much that it’s literally sold out everywhere right now, so we’ve had a really hard time finding one, but if you can find one, it’s a Schlage Encode.

Caleb Drake:
I have one on my front door in my actual house, and I’ve been looking all over for one.

Ashley Kehr:
You should resell it.

Tony Robinson:
Yeah, dude, it’s going crazy in the black market right now.

Ashley Kehr:
Yeah. I had text Tony’s wife, Sarah, about this as to what they use, and she had told me I think maybe two months ago. And so finally, I think it was Lowe’s had two of them in stock. So, I told my business partner I’m like, order these, because he gets the military discount, so it’s 10% off. I’m like, go ahead and order them. A week later I was like, when do you think those locks are coming in? And he’s like, oh, I think I forgot to order them, he’s like, I’ll do it right now. I’m like, dude, they’re gone, there’s no way they’re still there. And so he is checking everywhere every day because he feels so bad that-

Tony Robinson:
Sound like-

Ashley Kehr:
If anyone has them, I’ll pay you premium.

Tony Robinson:
Same.

Caleb Drake:
I’ll pay you more. But we have her set the code on the lock and then we’ll send that out closer to the check-in time. And we allow our early check-ins, so if she’s done it noon, normally she’s done around one o’clock and our normal check-in is three, so we’ll send it out as soon as that’s over, and say, Hey you’re welcome to check in, here’s your check-in code. And so that was the process. It got to the point where sometimes Josh would send it, I would send it, and so we had to just come up with a plan, who’s going to do the check-ins, who’s going to do everything else? And so as the business grew, we own long-term rentals now too, within our LLCs. And once that business started to grow, we had to start delineating those partnership responsibilities and going forward with that.
And so Josh handles most of the short-term rental check-ins and stuff. I handle anything that actually needs to be done locally since it’s right down the road. But for the most part, he handles all of that. But last week, for example, he was out of town, he’s active-duty military as well, and he was out in Las Vegas for some training, and they were out where they didn’t have any cell phones or anything. And so he said, Hey man, you’re going to have to handle the check-ins. And so I went back to my old ways of checking people in, and one day somebody said, Hey, do you have a code? And I was like, oh no, because I totally forgot because I was just used to being there with codes with the partnership with him being able to handle everything there.

Tony Robinson:
So, we started doing that. And then we wanted to grow the business over the last few years, and so we went into long-term rentals in our old college town. And so we started buying around the college where we knew that people would need to rent. And our original plan was to offer those rentals to some of the air force cadets and the army cadets that were going through college to be able to give them somewhere decent to stay. Because my hometown’s Indiana State University, Terre Haute, Indiana and there’s a lot of, for lack of better words, a lot of slum Lords that don’t take care of their properties. And so we wanted to buy some properties that we could fix-up, Bur essentially, we actually did a few Burs there, and we wanted to give somebody a decent place to live and have a little bit of pride in the rentals in that area. We bought a quadplex and I took over the charge on that just because I don’t think I mentioned it, but on top of being an active-duty military, I’m a full time real estate agent as well.
Busy man, huh?

Caleb Drake:
Yeah.

Tony Robinson:
You got things going all over the place, man. Well, Caleb, before we go too deep onto the long-term side, I just want to go back to the partnership piece because I think that’s important to highlight, you said that as the business grew, you had to recalibrate how the division of responsibilities was being handled. And it’s funny, man, because the same thing happened in our business as well. So, for Alpha Geek Capital, when we first started, my wife was just supposed to be the person that was communicating with the guest, that’s all she was supposed to do. And as the business grew, she took on this bigger responsibility, but she wasn’t even technically a partner in the business, it was just me and Omid, my other partner.
So, we had to stop and pause and say, Hey, the way we were doing things when we first started is dramatically different from how we’re doing things today, and the business ownership and percentages should reflect the level of work that’s going and the value that’s being provided per person today. So, I mean, did you guys have a similar conversation? Was it imbalanced for you to begin with, or I guess just walk us through that dynamic?

Caleb Drake:
Yeah, it definitely was. With me being local to the area, and then handling most of the procedures, what it came down to was Josh is very career oriented with the military he wants to move up, he wants to be a commander, I’m very, I guess, anti-career oriented where I want to build my rental portfolio to the point where I don’t have to work again. And I don’t want to do any more than 20 years in the military, at 20 years, I don’t even know if I want to work after that. That was what happened, was I was taken charge. We’re both very type A people, but I knew real estate more and I dug into real estate more than Josh did.
And actually, I think it was the Rookie Podcast, when you talked about your partnerships, and how you guys had to restructure, was actually the catalyst where I sent that to him, and I was like, Hey man, we’ve really grown faster than what we planned. At first, it was just, Hey, we’re going to buy a short-term rental, and just to have some extra income, and then neither of us needed any of that money, so it was like, dude, why don’t we just keep growing the business? And so we took the money that we were making, and we have really strong W-2s, and so we’re like, we both have six figure W-2s, why don’t we just continue to pump money into this business to hopefully make it a six figure business in the long run. But me being the real estate agent and the real estate-

Tony Robinson:
Junkie?

Caleb Drake:
Yes, junkie, he let me run that and he’s very supportive in that. Hey man, anything, if you think it makes sense, just show me why it makes sense and I’m all about it. Almost an auto approval process, but I give him the respect to say, Hey man, we’re buying a house, and he’s like, okay, where’s it at? And I’m like, oh, it’s Ontario, and it’s a quadplex and I think we can make some good money on it. Our first quadplex we bought, I was actually deployed. And so we bought it site unseen, I did most of the transaction with the agent, and it was a tough closing.

Tony Robinson:
It sounds Caleb, you were doing the majority of the day to day grind of running and growing the business, right?

Caleb Drake:
Yeah.

Tony Robinson:
Ashley, I think you’ve got a really good perspective on how to balance partnership, you’ve mentioned it a few times, where you can charge to management, why don’t you break that down? Because I think that’s a really good point to bring out.

Ashley Kehr:
Well, first of all, you find an intern to do all the work for you and give them equity after they do a good job. But so one thing to put into a partnership agreement that you can do if you are going to be working in the business is say, okay, so we’re going to be 50/50 partners, but our roles and responsibilities aren’t going to be described by that equity in there. For example, if you are doing the property management, so you’re getting paid maybe an hourly rate or a percentage, if somebody is going to be doing some of the maintenance on it, maybe they get paid an hourly rate, $30 an hour for any maintenance that is performed, if they’re doing the snowplowing on it, anything that. So that way, if you decide, okay, you know what? We’re going to start using contractors for the maintenance.
It’s not unfair, well, wait, I’m still doing all the leasing, I’m doing the property management and now you have nothing to do. So, it keeps that you’re getting your cash flow and that equity doesn’t make a difference as to what you’re doing because you’re getting paid extra. So when that rent income comes in, you pay your expenses, you pay each other what you’re owed, and then you go ahead and split the cashflow that’s left at the end of the month. So, I think that’s a fair way to do it is you put dollar amounts to the roles and responsibilities that each person has. And that way, if one person needs to give up that role or responsibility, it doesn’t really affect the balance of that 50/50 partnership.

Tony Robinson:
I was just going to say, I think what’s equally important too, Ash, is that if you miss that conversation on the front end, you guys have to have the courage to bring that up when you realize it, because if you don’t and one of those partners is feeling jaded or shorted, that’s going to create some deep seated I guess anger, or potentially, I don’t know, people won’t be happy if they’re feeling there’s some imbalance in the relationship. For the rookies that are listening, if you’ve entered into a partnership and you feel maybe things aren’t super balanced, maybe you underestimated the amount of work that was going into it, don’t let that resentment build, have the courage to bring that up to your partner.
Caleb, I mean, you guys have grown a lot, which I think is really cool. And you started off with the short-term rentals, you moved into the long-term rentals, you went all this while out of state. So, I guess the piece I want to drill down to is on the long-term side, when you guys said, we want to go into Terra Haute, if I’m saying that the right way? What was the driving force to say? We’re doing really well with short-term rentals, but we also want to add this long-term rentals to our portfolio as well.

Caleb Drake:
I think a lot of it was honestly the start of COVID. We saw a slight decline, and we’re in Florida, so it was very short with the decline, but we ended up getting a midterm renter in that was down here for military. So, we lucked out we never had any vacancies, but we did see a lot of cancellations. And the way that was handled for a host we lost a lot of income there. And so luckily we were able to support, our mortgage and everything with the reserves that we kept, and then also with our W-2s. So, we weren’t really in any a fear of losing the property, but what we wanted to do was hedge our bets with short-terms and just build a portfolio of long-terms around that so that we could still have cash flow.
Everybody’s going to need a house to live in, but if the market turns not everybody’s going to want to go on vacation or can afford to go on vacation. So, we knew that Indiana State had a lot of college students, so we figured we would buy close to the campus, and then we would always have renters. Campus’s right downtown, so we have other people that aren’t in college that rent off of us. And it’s nice because we’ve got good solid tenants in all of our properties. And we have a great property manager, that’s one thing for the rookies, is if you’re investing out of state, make sure you have a great property manager because they can take the brunt of that stress off of you. But that was really why, it was just because we wanted to make sure that we could have a business that was making money year-round. And if you’re in the slow season of rentals you still have some income coming in from the long-term rentals for sure.

Ashley Kehr:
Caleb, how are you funding all of these deals? So, from your primary, to the next short-term rental with a partner, and now into long term rentals, is it from your W2, or are you guys doing loans on it, hard money?

Caleb Drake:
A mixture of both.

Ashley Kehr:
Okay.

Tony Robinson:
Starting out, we took the money that we were making from the Airbnb, and this probably isn’t for everyone, but Josh and I knew that we had good reserves in our personal accounts, so if anything came up, we’d split everything expense wise, 50/50 on all of our business stuff. So, we took the money that we had in that business account and we dumped that into our first quadplex. And we knew that it was going to need a little bit of work. I mean, the numbers were similar to your market, Ashley, where we bought the quadplex for $60,000, we put 25 down after closing costs, and then we ended up putting about $25,000 into it. But we had that money in our LLC account because neither of us pull any income from that account because it’s just it’s money that we’re trying to continue growing with.
Our goal is to use that to grow for about the next five years, just to continue, we pump that money back into the business, and then some of our personal money as well. That was how we funded the first deal. Then from there it became essentially a BiggerPockets commercial because we burred a property, we pulled money out of a property, some creative financing. But that property, the quadplex the initial bur we actually funded with a conventional loan, and it was a very hard one to close because the agent on the other side didn’t think it could close conventionally. And then we found out she had a cash buyer on the reserves. So, she wasn’t real helpful on the closing, and so luckily being an agent, I knew that process.
And so I was being deployed even, I was running that with my real estate agent in Indiana. And we finally got it closed, did the rehab on it, got it a %100 occupied, and then I was just like, why aren’t we burring this? And so we’ve got half of the steps already done, and so we looked into commercial financing from a local bank. And I had some relationships already built because I’m from there, and so I talked to some people that I knew, and we went with the local bank and they gave us a decent, it’s a 5/1 ARM, but that was already within our exit strategy of re-financing at that point, anyway. So, we used the 5/1 ARM commercial, and it’s a 5% interest rate, and we pulled out about $40,000 out of that property. And so we ended up leaving about $7,500 total into the property and it’s 24, 30 a month in rent.

Ashley Kehr:
Wow. That’s great. That’s not a lot to leave into that property. Caleb, can you just explain what is the difference between getting a residential loan, and a commercial loan, some of those differences that you noticed when you went through each process? And then what a 5/1 ARM is for anyone that doesn’t know?

Caleb Drake:
Yeah. A residential loan is obviously going to be anything from one to four units in a property, and then a commercial is five and above, or a commercial can be on any cash-flowing asset. You can even get a commercial loan on a single-family if the numbers make sense. But the commercial loan, they’re going to look at the property as an asset and not as necessarily a residential property, so they’re going to look at will the amount of rent pay the debt service on this? And when it does, then obviously, the bank is willing to give you that money. And so there’re certain parameters that depending on the bank that you use but they’ll look at it and see, is this a solid investment? Do we want to hold this? Because a lot of commercial is held in a portfolio by that bank, so they are not selling that loan necessarily. So they’re going to keep that at their bank, so they’re would this something that we want on our books? Will this make us money in the long run as well?
The 5/1 ARM going back to that is, it’s an adjustable rate. So, we’ve got a five year locked in term, and then after that it’s adjusted at the market rate. I think it’s the market rate, plus half a percentage on ours, or maybe it’s 1%, I honestly didn’t get too deep into the year after that because we planned to refinance it again within that five years. But that’s what that is, it’s five years fixed, and then the one, means one year after that.

Tony Robinson:
Yeah. Caleb, before we move on, I just want to quickly ask why did you guys opt to go with the commercial debt from the beginning as opposed to going with personal debt?

Caleb Drake:
Josh was moving back from England, I was in the process, during all of this, in the process of building my forever home, or hopefully my forever home. And so we didn’t want our rental properties to affect our own debt to income ratio. And so we put them into our LLC, so not only for liability purposes but just for DTI purposes as well, we wanted to start to finance everything into the business. This property residentially it was financing into my name only because Josh was in college, and he wasn’t collecting income from the military because he was on a sabbatical essentially from the military. And so the deal was we would put it in my name and then refinance out of it, or he would pick up the next loan in his name.
And so we had a going back and forth, but we had noticed on our first-year of Airbnb, we just put it in both our names, we titled it in both of our names, and the bank was asking questions like, Hey, you have this loan and who’s Josh? Why is he on this loan? And so instead of having to explain that every time we bought and moved for the military, it was just easier to put them into an LLC, and then to protect us liability wise, and then also to take it off our DTI.

Ashley Kehr:
Caleb, what are some lessons or maybe challenges you had or obstacles that you had getting this property, the fourplex, and doing the commercial loan that you learned and that has helped you as you moved on to purchase other properties?

Caleb Drake:
I would say that having those systems in place when you go into it and making sure that you have a good agent that understands the investor mindset. My agent’s a family member, and she’s not a huge investor. And I wasn’t really good with telling her what I wanted and what I needed out of a property, and then just being clear with what I needed from her as an agent as well. So, I think going into it, your agent does appreciate if you are upfront with that, Hey, this is our goals, this is what we want to do with this property. Because when she looked at the property, she was like, this place is junk, it’s not a good investment.
I’m it will be $25,000 later, it’ll be a great investment. And we knew that going into it, that we were going to need to fix it up. But I think the underestimating rehabs and underestimating the repair costs when you’re analyzing a deal has really affected the cash on this one, because the house was built in 1905, and it’s a big Victorian house, underestimating rehab costs, and then underestimating the monthly expenses when it comes to older properties, that was the biggest advice that I have for rookies in these deals.
Because I hadn’t seen this deal until we had completely rehabbed it. The only reason I ever saw it was just because I was in town. Actually I was in town for the military in my hometown, we were flying out of our home, my own town and so I went back to do that. But other than that, it was a good deal and it will be a good deal over the long-term, but I think making sure that you have all your systems in place and you have reserves ready because you can really stretch yourself thin if you don’t.

Tony Robinson:
I just want to share a personal story, because we’re actually going through this right now. So, I’m actually leaving to New York on Sunday morning to look at a bed and breakfast that we have in our contract. And this house is-

Ashley Kehr:
To visit me.

Tony Robinson:
Really to visit Ashley, that’s the only reason why. But this house is built in 1922 and it’s the oldest house that we’ve ever purchased. And it’s the only house we purchased in an area that gets a lot of snow. And those are two things that for people in California, old houses and a lot of snow, we just don’t have that out here. So, it was really outside of our comfort zone to buy this property, but we see the upside, which is why we’re moving forward with it. But what we’re also doing is that we already had our full property inspection done, we have two contractors meeting us out there while we’re there for the visit. And our hope is that between those two things, we can get a really good handle on what the potential rehab costs will be, before we end up losing our earnest money deposit before we own this property.
So, just as a tip to real estate investors, the rookie that are listening, get a property inspection report, try and get at least two quotes from a GC, and those will hopefully get you to ballpark your numbers as best as you can. But one question for both of you, since you’re buying houses from the 1800s, so this bed and breakfast that we’re looking at, it actually has knob and tube wiring, which I’ve never had to deal with that before, investing or reinvest. If you guys are buying a house with knob and tube, do you leave it in place? Do you completely do new electrical what does that look for you guys?

Ashley Kehr:
Do you know what the breaker box is, is it fuses?

Tony Robinson:
I’d have to check the inspection report, but I don’t know, probably, this house is built in the early 1900s.

Ashley Kehr:
That’s what I would start at is see if it has an updated breaker box or not. Good thing I’m coming Monday to see that.

Tony Robinson:
Caleb, what about you, man? Any advice there, have you dealt with that yet? Knob and tube?

Caleb Drake:
No. So, we deal with a lot of aluminum wiring in the market that I sell houses in, and it’s difficult to get insurance on. So, that would be my first advice would be to talk to your insurance agent, because down here you can’t get insurance on most homes with aluminum wiring, with the standard insurance, and if you can it’s about triple what a normal annual insurance policy is. So, that would be my first step, would be to do your due diligence on what it’s going to cost you to insure it if you are allowed to have it.
And then second would be, but really just advice, there are two things, well, there’s three things tenants included, but there are two things that can really destroy a house and that’s fire and water. So, these old houses if the electrical is bad, that’s easy to catch on fire, and then we’ve already had an issue with our quadplex, a pipe busted during the winter, an old pipe and then flooded the bottom floor of the property.

Tony Robinson:
That sounds like fun, man.

Caleb Drake:
Yep. So, make sure those two things are up to date. And spend the money while you’re doing the remodel just to get it done because in the long run you’re going to be better off.

Tony Robinson:
Yeah. Well, I appreciate that advice, Caleb, actually, that’s the benefit of being the rookie host is that I get to selfishly take over episodes to ask questions about my own deals that I’m working on. Cool, Caleb, are you ready for today’s question?

Caleb Drake:
Yeah.

Sebastian:
Hey guys, I’m Sebastian from Florida. I’ve got a question about refinancing on my primary home. I’m currently working on a remodel for a duplex that we just bought, and thinking about refinancing our current home which will be a rental here in the near future. So, I’ve heard that if we get a lease, a tenant in there, of course we can refinance it, we might be able to get more money back since there’s a lease in place, or would it be a better idea to refinance it now just based on my income alone. Which should be fine, the only fear is rates, I’m wondering if rates are going to be any higher next year. So, just trying to see what you guys recommend in that case. Again, thank you.

Speaker 6:
Okay. I think one, you got to look to see if the numbers make sense at the current rate based on the rents that you’ll be able to get from that property. So, look at that and then if those numbers make sense, then just judge where that interest rate is, what you have it currently at, and what it’s going to be at when you refinance, and then think about what you’re going to be able to do with that money. If you’re losing a hundred dollars a month because your interest rate ran up, but you’re able to take that money and make $700 a month, you’re at a 600 net there. So, it may not look as good on paper, when you first look at the numbers as far as, oh, I’m about to lose $100 a month in cashflow if I refinance this but you’ll be able to grow your business and grow your portfolio, it’s definitely a positive.

Ashley Kehr:
I think that if this is currently your primary home, you are going to get the best interest rate since it’s your primary. So, I would do it now before you turn it into a rental because no matter what the interest rates are now, or then, having it as your primary home, you’re going to get a better interest rate on it. And then you can leave that mortgage in place, or if you do a line of credit, or even a home equity loan you could do on it, and have that on there even when you put tenants in place. We have a friend that I think it was the day before he bought a new house he went and got a line of credit on his primary that he was turning into a rental basically the next day. So, you’re definitely at an advantage of having it as your primary. So, I would do some type of financing on it now, before you turn into a rental.

Caleb Drake:
Yeah. And I think thinking about it, historically interest rates are still very low, when you look at certain times that some of us weren’t alive, you had interest rates in 15, 16%. For the average millennial, we haven’t seen interest rates at 5% when we were in the age to buy a house. So this 5%, 6% is a sicker shock to us, but when you talk to the boomer generation, it’s completely different, they’re like, wow, you guys are so lucky, my first house of 15%. I think just considering that we’re still at a low, you’re still in a good place, even if you refinance at a 5, 4.25%.

Tony Robinson:
All right, Caleb. So, are you ready for our next segment which is the rookie exam?

Caleb Drake:
Yeah, let’s go, I studied.

Tony Robinson:
All right, brother. So, these are the three most important questions anyone will ever ask you in your life, so I hope that you are prepared, man, because there’s a lot ratting on you getting these questions right. So, question number one, what is one actionable thing a rookie should do after listening to this episode?

Caleb Drake:
I definitely would say, I think it’s cliche, but network, network, network, network, everybody. Tell everyone what you are doing and what you want to do. Whether that’s, Hey, I want to buy an off-market property, or Hey, I’ve got a quadplex and I want to fix it up, somebody’s going to be able to help you in that, and you’ll be able to create relationships in the long run. Go to industrial meetups, go to the BiggerPockets forums, ask the questions and just tell everyone, you may end up pulling a private money investor out; tell your uncle, tell everybody. That’s where I would start. And then a secondary to that, I would say, focus on the deal. Building a team is important, but you can build an entire team and have no deal then really, what are you doing at that point? You don’t want to waste people’s time, get a feeler for the area, if you’re besting out of state get a feeler for the local contractors, cleaning people if you’re planning on doing short-terms, but make sure that you have a good deal before you just build an entire team around it.

Ashley Kehr:
Okay. The next question is one tool, software, app, or system in your business that you use?

Caleb Drake:
Yeah. So, as an investor agent, I use Rentometer all the time, and to be able to help some of my buyers find properties that cash flow and make sense. That, and then having some of the calculators just to be able to run those cashflow analysis and run those rehab costs on properties is paramount to success. So, mainly lately I’ve been on Rentometer Pro a lot, it’s definitely worth the money. And then using the BiggerPockets forums to network. And we’re in the business or in the process of building our real estate business here in Pensacola, and so I use BiggerPockets. I’m a BiggerPocketss premium guy. So, I do a lot of networking, a lot of lead generation off of BiggerPockets and I love it.

Ashley Kehr:
We always love a BiggerPockets plug.

Tony Robinson:
Yeah. And speaking of BiggerPockets, plug another one, we’ve got the BP insights where you can also see potential market rents as well. I’ve literally plugged in some of my old long-term rentals into that tool. And it sped out almost the exact number that I was charging my tenant. So, if you are a BP Pro member, that’s a great tool for you as well. So, last question for you, Caleb, where do you plan on being in five years?

Caleb Drake:
Yeah, so I’ve got a friend Erin Hilley, she challenged me to write my goals down. So, I started writing my goals down on a one year, five year, and ten year plan, and then with an overall goal. But my five year plan was to flip a property, and add another short-term rental, and then scale the rental business to a $100,000 annual cash flow. And then also to have about a $15,000 annual cash flow for my personal portfolio. So, I’m buying for our business and then I’m also buying at least one property a year on my personal portfolio as well. So, my goal is to have six about $60,000 a year in cash for myself. And so that numbers start to make sense at that point.

Tony Robinson:
Caleb, quick question, so you have this partnership where it seems you and Josh are doing pretty much everything together. How did you come to the agreement that you would still build your own personal portfolio on the side? And how do you go about deciding which one goes into the partnership, and which one you keep for yourself?

Caleb Drake:
It was-

Tony Robinson:
Or does Josh not know about this, and this is going to be breaking news with 20 years?

Caleb Drake:
Just not going to tell him I’m on the show. No, Like I said, Josh let me run the acquisitions. We bought seven doors last year, and then I bought one personal single family, and they were all in Indiana. But I told Josh that I wanted to at least buy one a year. I was just very open with him about my goals, and I picked up a property, we put it under contract actually for the business, and then we needed a little bit of money coming in from both of our personal accounts because we were stretched on a Triplex that we bought. And so I said, Hey man, I can do this on my own, or we can do it together, I’m agnostic. And he said, no, you know what? I’m moving back to the states, we’re going to buy another house, I’m going to buy my personal house, so just do this one on your own.
And it turned out to be a pretty good property. And that was where I was like, I think I want to still grow my personal portfolio and to be able to get that 100% instead of 50% of the cash flow, and being able to actually do what I want with that money. We have an agreement that we’re going to keep that money in the business unless we need it for emergencies or something of those sorts, but we’re going to keep that money to grow the business, and so having a little bit of personal cash flow is nice as well.

Ashley Kehr:
And I think that’s so important, having those lines of communication and having that goal alignment. Your partner understands what your personal goals are too, and they’re supportive of that. And it wasn’t a surprise to them that, oh, wait, what, you’re going to buy one without me?
Well, I want to take us to our rookie rockstar this week. It is Lindsay B, and you can be our rockstar if you want to send us a DM with your win for the week, or you can leave us a message on the Real Estate Rookie Facebook group. So, Lindsay just did her very first flip. She purchased it for 85,000, spent 22,000, and she actually used a 0% interest credit card for 15,000 of it. And then she sold it for 178,000. She completed the flip in about 45 days, and she has about 62,000 in profit before taxes, after her closing costs, carrying costs, and the rehab on it. So congratulations, Lindsay. That’s awesome.
Well, Caleb, thank you so much for joining us today. And can you tell everyone where they can reach out to you and find out some more information?

Caleb Drake:
Yeah. I’m starting to use social media a little bit more than I used to. Being in the military, they tell you not to use social media as much as possible, but I opened my socials up. So, my Instagram is Drake_oh. It’s got a sign ofthe airplane that I fly, and my last name, because it’s Drake. But then my email, you can find me at [email protected] And I’m available at both of those anytime.

Ashley Kehr:
Okay. You guys heard it here first, slide into Caleb’s DMS, and ask him your questions. Well, thank you so much for joining us. I’m Ashley @wealthfromrentals. And he’s Tony @tonyjrobinson. If you guys love the podcast, please leave us a review on your favorite podcast platform, and check us out on Real Estate Rookie, YouTube. Thank you guys. And we will be back on Saturday with a rookie reply. (MUSIC).

 



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